The beginning of a Trump administration in the US has weakened the strength of the US dollar against other major currencies. The global financial markets have reacted badly to the divisive news of Trump’s travel ban, which in turn has pushed up the price of gold.
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Safe Haven Investments
Gold and other precious metals are widely viewed as ‘safe haven’ investments. When the markets are volatile and the value of the US dollar weak, investors buy into gold to boost their portfolios and lessen their exposure to risk. In February, gold prices rose and fell in response to news of US trade tariffs, potential US interest rate hikes, and the Greek debt crisis. The biggest influences on the market price of gold are, however, Federal Reserve policies and the current value of the US dollar. A strong US dollar keeps gold prices low, so when the US dollar gains against other currencies, gold prices fall.
Volatility in Gold Prices
Investors turn to gold when returns on other investments are low. When interest rates rise, yields from other asset classes increase, so investors turn away from gold in favour of bonds, stocks and shares. The problem for traders is that gold prices are fluctuating a great deal right now, with the continual flow of news from the US causing great volatility.
Will the Federal Reserve Raise Interest Rates?
Indications are strong that the US Federal Reserve will raise interest rates in a bid to curb consumer spending before long. Janet Yellen told the congress last week that she was concerned a delay in raising interest rates would cause a recession. However, there is no guarantee this will happen, as previous talk of interest rate increases failed to materialise.
With such mixed messages coming from the US, online traders are capitalising on small gains and losses in the price of gold.
Price Data Charts
Scalpers use two-minute charts to identify strong trends from the price data generated by the markets. These charts tell traders when it’s time to buy for a profit or sell to cut losses. Gold trading is not an exact science, but by following price data charts closely, experienced online traders can make money from daily gains and falls in gold prices.
If the Fed does tighten up its monetary policy, the US dollar is likely to rise, which in turn will push the price of gold back down. But for now, it seems certain that gold prices will continue to exhibit a high level of volatility as the markets react to continued political uncertainty in the US and Europe.